Southwest Components recently switched to activity-based costing from the depart

Question

Southwest Components recently switched to activity-based costing from the department allocation method. The Fabrication Department manager has estimated the following cost drivers and rates Activity Centers Materials handling Quality inspections Machine setups Running machines Rate per $19 per pound $2,900 per setup Cost Drivers Cost Driver Unit Pounds of material handled Number of inspections Number of machine setups Number of machine-hours 240 per inspection $22.00 per hour Direct materials costs were $317,000 and direct labor costs were S138,000 during July, when the Fabrication Department handled 3,500 pounds of materials, made 740 inspections, had 40 setups, and ran the machines for 14,000 hours Required Use T-accounts to show the flow of materials, labor, and overhead costs from the four overhead activity centers through Work-in-Process Inventory and out to Finished Goods Inventory Materials Inventory Wages Payable Beg. bal Beg. bal End. bal. End. bal Overhead Applied: Materials Handling Overhead Applied: Quality Inspections Beg. bal Beg. bal End. bal End. bal Overhead Applied: Machine Setups Overhead Applied: Running Machines Beg. bal Beg. bal End. bal End. bal

Explanation / Answer

T-accounts are as prepared below:

Material Inventory Beg Bal 0 WIP Inventory 317,000 Wages Payable Beg Bal 0 WIP Inventory 138,000 Overhead Applied- Material handling Beg Bal 0 WIP Inventory (3,500*19) 66,500 Overhead Applied - Machine setups Beg Bal 0 WIP Inventory (2,900*40) 116,000 Overhead Applied- Quality Inspections Beg Bal 0 WIP Inventory (240*740) 177,600 Overhead Applied- running machines Beg Bal 0 WIP Inventory - (14,000*22) 308,000 Work in Process Inventory- fabrication department Beg Bal 0 Finished goods inventory 1,123,100 Material Inventory 317,000 Wages payable 138,000 Overhead Applied- Material handling 66,500 Overhead Applied - Machine setups 116,000 Overhead Applied- Quality Inspections 177,600 Overhead Applied- running machines 308,000 1,123,100 Finished Goods Inventory WIP Inventory 1,123,100

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